High Court Hears Arguments on Accrual Of Limitations Periods in ERISA Plans

In considering the date on which a disability plan's contractual limitations period begins to run, the U.S. Supreme Court justices questioned attorneys on a wide range of issues, including federal law preemption, equitable doctrines, potential harm and the purpose of the Employee Retirement Income Security Act's administrative exhaustion requirement (Heimeshoff v. Hartford Life & Accident Ins. Co., U.S., No. 12-729, argued 10/15/13).

Arguing on behalf of the plan participant, Matthew W.H. Wessler of Public Justice, P.C., in Washington, urged the court to strike down a plan limitations period that began to run before the participant had completed the plan's administrative review process.

This provision “directly conflicts with ERISA's two-tiered remedial structure” and makes it “impossible for anyone to know in advance how much time will be left on the limitations clock after the internal process is complete,” Wessler argued before the court.

Catherine M.A. Carroll of WilmerHale's Washington office defended the limitations period, arguing that ERISA gives employers “broad leeway to choose the terms on which they agree to provide benefits.” Carroll asked the justices to uphold the terms of the plan, saying that “suits for benefits due under an ERISA plan can seek only to enforce those agreed-upon terms.”

Limitations Period Dispute

The justices were asked to shed light on when a contractual limitations period in an ERISA-governed disability plan begins to run. The plan at the center of the dispute included a provision stating that any litigation challenging an adverse benefit determination must be brought within three years after the time “proof of loss” was required to be submitted to the plan's administrator in the course of filing a claim for plan benefits.

The petitioner, Julie Heimeshoff, challenged this limitations period on the grounds that it began to run before the time at which the plan administrator issued a final benefits determination. According to Heimeshoff, many ERISA plans require claimants to exhaust administrative remedies before filing suit, while “[a]t the same time, the limitations period begins running and wastes away while the claimant is going through the administrative review process.”

This “undermines the internal benefit resolution process while simultaneously weakening ERISA's civil enforcement protections” and “gives fresh meaning to the word Kafkaesque,” Heimeshoff argued in her brief.

In her petition for Supreme Court review, Heimeshoff argued that the circuits “conflict” over the accrual time for ERISA statutes of limitation, with the Fourth and Ninth circuits prohibiting limitations periods that begin running before a legal claim has accrued and the Second, Fifth, Sixth, Seventh, Eighth and Tenth circuits upholding such limitations periods.

The plan's administrator, Hartford Life & Accident Insurance Co., argued that Heimeshoff “mischaracterize[d] the nature and degree of conflict among the circuits.” According to Hartford, “every circuit but one to have considered that question has concluded that nothing in ERISA categorically forbids the enforcement of a contractual limitations period that begins to run before a claimant may bring suit.”

Administrative Process

During the Oct. 15 oral arguments, Justice Stephen G. Breyer asked Wessler whether Heimeshoff's problem could be solved by allowing her to file a “protective complaint” prior to the conclusion of the administrative review process.

Wessler argued that this solution would distort the administrative review process, saying that this “gets lawyers and courts involved in a process that should be private.”

“ERISA's internal benefits process, it processes millions of claims a year,” Wessler said. “If we have lawyers turning what should be a non-adversarial, private process into one that is adversarial and that allows for the possibility of filing protective actions in which we ask the Federal court to stay a potential Federal claim that may never exist while we are in this indeterminant, flexible process, the courts would be brought directly into a process that should be private.”

In a later exchange with Carroll, Chief Justice John G. Roberts appeared to echo Wessler's concerns.

“[T]he last thing you want in this process is to get lawyers involved at the claim procedure,” Roberts said. “And [claimants] say, well, there's only 10 months left, I'd better hire a lawyer, you know, and instead of the informal resolution, you've suddenly got lawyers involved.”

“Why isn't that a legitimate concern?” Roberts asked Carroll.

Alito Questions Preemption

At various points during the arguments, Justice Samuel Alito circled back to the question of ERISA preemption, an issue that received no attention in the parties' briefs.

Alito raised the hypothetical situation of a state law that prescribed a limitations period similar to that of the Hartford plan, in which a judicial claim must be brought within three years after proof of loss was required.

“Does it follow, then, that the rule that you're advocating would mean that ERISA preempted the state law that regulated insurance in the way that I just specified?” Alito asked Wessler.

Alito said he found it “very hard to answer the question that is presented here without knowing the answer to the preemption question.”

Effect of Ruling

In her questioning of counsel, Justice Sonia Sotomayor focused on the effect a ruling in favor of Heimeshoff would have. Specifically, she questioned whether such a ruling would prevent Congress or the Department of Labor from addressing the issue through the legislative or regulatory process.

Jumping in the debate, Justice Antonin Scalia asked for examples of situations in which federal agencies had established rules governing when judicial claims must be filed. He questioned Ginger D. Anders of the Department of Justice as to whether such a ruling would be within the authority of a federal agency such as the DOL.

“An agency saying you've got to sue within one year; you've got to sue within six years. Offhand, I can't think of any [agencies that have done that], and—and I think it goes well beyond what—what the Executive is authorized to prescribe,” Scalia said.

Justice Elena Kagan raised related concerns.

“I guess one question is: If you think that you do have the authority and you think that the majority rule has been creating problems, why the Department of Labor hasn't done that?” Kagan asked Anders.

Causing Problems

Justices Anthony M. Kennedy and Kagan pressed counsel on the frequency with which limitations periods such as Hartford's had caused problems for plan participants.

Noting that federal courts have been “pretty liberal” in allowing ERISA claimants to “take a little bit more time” when necessary, Kagan questioned whether Heimeshoff's proposed rule was a “solution in search of a problem.”

In an exchange with Carroll, Justice Breyer said that his clerks had discovered five cases in which a plan's administrative review process lasted longer than the applicable limitations period, with four other cases in which the two were close. Breyer asked Carroll what Hartford's proposed solution would be for those nine people, bringing up the possibility of equitable estoppel. Scalia then asked about the possibility of equitable tolling.

Attorneys React

Michelle L. Roberts, an attorney with Springer & Roberts LLP in Oakland, Calif., and counsel for amicus curiae United Policyholders, told Bloomberg BNA Oct. 15 that she thought the justices were inclined to enforce the plan terms as written while allowing for the possibility of equitable relief.

“My inclination is that the justices want to say that the plan term is enforceable because the Supreme Court seems not to want to override the terms of a plan,” she said. “However, you can have exhaustion that occurs right on the eve of a statute of limitations running, and what do you do then?”

“Recognizing that courts can equitably toll or estop a plan from enforcing a limitations period in those circumstances—I think the justices were very interested in that,” she said.

She also said that the “protective lawsuit” mentioned by Breyer wouldn't solve the problem.

“If you file before exhaustion, you get kicked out,” she said. “And in some rare cases, you get dismissed with prejudice. That invites so many unnecessary cases.”

Roberts said she wanted the court to adopt the bright line accrual rule advanced by Heimeshoff.

“I would love to see a bright line rule, but my gut tells me we'll see them letting the parties' contract stand,” she said.

Nicole A. Eichberger, an attorney with Proskauer Rose LLP's New Orleans office, told BNA Oct. 15 that she saw the potential for the Supreme Court to resolve Heimeshoff's case on its specific facts, rather than reaching the broader issue of when an ERISA plan's limitations period begins to accrue.

“We could be looking at a Supreme Court not directly answering the question that employers are looking for, which is an affirmance and the plan terms being upheld,” Eichberger said.

“I still think there's a potential for uncertainty for employers going forward,” Eichberger said.

Eichberger wasn't involved in the litigation.

Excerpted from a story that ran in Pension & Benefits Daily (10/15/2013).